After having discussed various kinds
of entities falling within the fold of the term Association
of person and before discussing the other relevant provisions
for entities (being discussed today) it is my duty to
point out that since these entities have no physical existence
under the law they are represented by a natural person
which in common parlance is said to be its representative.
It will be observed from the various provisions as contained
in the Income Tax Ordinance, 2001 according to peculiar
situation and statutory need terms like "PERSON",
"TAX PAYER", "COMPANY", and "INDIVIDUAL"
have been used. I may humbly submit that while examining
the provisions of the Ordinance such usage has to be kept
in mind. In this regard and with reference to today's
discussion I would invite attention and refer to the definitions
of the term "TAX PAYER" which has been defined
under Clause (66) of Section 2 which reads as follows:
Section 2. (66)
"taxpayer" means any person who derives an amount
chargeable to tax under this Ordinance, and includes -
(a) any representative of a person who derives an amount
chargeable to tax under this Ordinance;
(b) any person who is required to deduct or collect
tax under Part V of Chapter X and Chapter XII; or
(c) any person required to furnish a return of income
or pay tax under this Ordinance;
It will be observed that in the definition under clause
(a) word "any representative of person" has
been used. The connotation of the word "representative"
has been given by the law makers under Section 172, while
Section 173 stipulates the liability and obligations of
representatives. Both the relevant Provisions are being
reproduced for convenience and ready reference:
Section 172. Representatives.-
(1) For the purposes of this Ordinance and subject to
sub-sections (2) and (3), "representative" in
respect of a person for a tax year, means -
(a) where the person is an individual under a legal disability,
the guardian or manager who receives or is entitled to
receive income on behalf, or for the benefit of the individual;
(b) where the person is a company (other than a trust,
a Provincial Government, or local authority in Pakistan),
the principal officer of the company;
(c) where the person is a trust declared by a duly executed
instrument in writing whether testamentary or otherwise
(including any Wakf deed which is valid under the Mussalman
Wakf Validation Act, 1913 (VI of 1913)), any trustee of
the trust;
(d) where the person is a Provincial Government, or
local authority in Pakistan, any individual responsible
for accounting for the receipt and payment of moneys or
funds on behalf of the Provincial Government or local
authority;
(e) where the person is an association of persons, the
principal officer of the association or, in the case of
a firm, any partner in the firm;
(f) where the person is the Federal Government, any
individual responsible for accounting for the receipt
and payment of moneys or funds on behalf of the Federal
government;
(g) where the person is a public international organisation,
or a foreign government or political subdivision of a
foreign government, any individual responsible for accounting
for the receipt and payment of moneys or funds in Pakistan
on behalf of the organisation, government, or political
subdivision of the government.
(2) Where the Court of Wards, the Administrator General,
the Official Trustee, or any receiver or manager appointed
by, or under, any order of a Court receives or is entitled
to receive income on behalf, or for the benefit of any
person, such Court of Wards, Administrator General, Official
Trustee, receiver, or manager shall be the representative
of the person for a tax year for the purposes of this
Ordinance.
(3) Subject to sub-sections (4) and (5), where a person
is a Federal Government; or non-resident person, the representative
of the person for the purposes of this Ordinance for a
tax year shall be any person in Pakistan -
(a) who is employed by, or on behalf of, the non-resident
person;
(b) who has any business connection with the non-resident
person;
(c) from or through whom the non-resident person is
in receipt of any income, whether directly or indirectly;
(d) who holds, or controls the receipt or disposal of
any money belonging to the non-resident person;
(e) who is the trustee of the non-resident person; or
(f) who is declared by the Commissioner by an order in
writing to be the representative of the non-resident person.
(4) A bona fide independent broker in Pakistan who,
in respect of any transactions, does not deal directly
with, or on behalf of, a non-resident principal but deals
with, or through a non-resident broker, shall not be treated
as a representative of the non-resident principal in respect
of such transactions, if -
(a) the transactions are carried on in the ordinary
course of business through the first-mentioned broker;
and
(b) the non-resident broker is carrying on such transactions
in the ordinary course of its business
(5) No person shall be declared as the representative
of a non-resident person unless the person has been given
an opportunity by the Commissioner of being heard.
Section 173. Liability and obligations of representatives.-
(1) Every representative of a person shall be responsible
for performing
any duties or obligations imposed by or under this Ordinance
on the person, including the payment of tax.
(2) Subject to sub-section (4), any tax that, by virtue
of sub-section (1), is payable by a representative of
a taxpayer shall be recoverable from the representative
only to the extent of any assets of the taxpayer that
are in the possession or under the control of the representative.
(3) Every representative of a taxpayer who pays any
tax owing by the taxpayer shall be entitled to recover
the amount so paid from the taxpayer or to retain the
amount so paid out of any moneys of the taxpayer that
are in the representative's possession or under the representative's
control.
(3A) Any representative, or any person who apprehends
that he may be assessed as a representative, may retain
out of any money payable by him to the person on whose
behalf he is liable to pay tax (hereinafter in this section
referred to as the "principal"), a sum equal
to his estimated liability under this Ordinance, and in
the event of disagreement between the principal and such
a representative or a person as to the amount to be so
retained, such representative or person may obtain from
the Commissioner a certificate stating the amount to be
so retained pending final determination of the tax liability,
and the certificate so obtained shall be his authority
for retaining that amount.
(4) Every representative shall be personally liable
for the payment of any tax due by the representative in
a representative capacity if, while the amount remains
unpaid, the representative -
(a) alienates, charges or disposes of any moneys received
or accrued in respect of which the tax is payable; or
(b) disposes of or parts with any moneys or funds belonging
to the taxpayer that is in the possession of the representative
or which comes to the representative after the tax is
payable, if such tax could legally have been paid from
or out of such moneys or funds.
(5) Nothing in this section shall relieve any person
from performing any duties imposed by or under this Ordinance
on the person which the representative of the person has
failed to perform.
Another important term used for specific statutory need
is the term "Principal officer" which has been
defined in Clause (44A) of Section 2 which reads as follows.
"Section 2 Clause (44A)
"principal officer" used with reference to a
company or association of persons includes-
(a) a director, a manager, secretary, agent, accountant
or any similar officer; and
(b) any person connected with the management or administration
of the company or association of persons upon whom the
Commissioner has served a notice of treating him as the
principal officer thereof;
Now, at this stage I would like to make an attempt to
give brief references (with comments) to the provisions
of Income Tax Ordinance, 2001 which covers, the determination,
computations and assessment of income and tax of Unit
of assessment namely Association of Persons.
I am still a student of law, my following remarks may
not be considered as pompous or arrogant. In my humble
opinion the arrangement of the statutory provisions made
in the Income Tax Ordinance, 2001 is without any logic
and arrangements seems to have been made without properly
understanding the art of legislative drafting. However,
to avoid the confusion I have tried to deliberate and
explain determination of Income and tax, notwithstanding
the said confusion. Firstly I will refer to Section 4
the charging Section and then will directly refer to Section
10 & 11 so as to avoid the confusion.
Under the Income Tax Ordinance, 2001 charge has been
created under Section 4 with reference to the taxable
income of every person on the rates specified in first
Schedule. Section 4 also provides the methodology of tax
credits and separate taxation commonly known as final
tax liability or presumptive regime. Sub-section 5 of
Section 4 stipulates that incomes which are subjected
to separate taxation under Section 5 (Dividend Income),
6 (Tax on Fee for technical services or royalty to non
residents ) 7 ( Tax on non residents on shipping and air
transport income) or final tax under Part V Chapter-X
shall not be included in the computation of income in
accordance with section 8 or 169 as the case may be.
Section 5 imposes tax at the gross amount of receipt of
dividend from a company at rates specified in Division
III of Part I of First schedule. The final tax liability
is for all the Tax Payers and is subject to the
other provisions of this Ordinance which excludes exempt
dividends from its purview. I have separately dealt with
incomes in succeeding paragraphs.
The term taxable income has been defined under clause
(64) of Section 2 which refers to Section 9. It gives
general statement that the taxable income of a person
shall for tax year shall be the total income of the person
reduced (but not bellow zero) by the total of any deductible
allowances under part IX of Chapter -III. The term total
income has been defined under clause (69) of Section 2
with reference to Section 10 which states that total income
of a person shall be the sum of the person's income under
each of the heads of income for the year. As we are well
aware that heads of income for the purposes of the imposition
of tax and the computation of total income has been classified
under Section 11, which are (a) Salary (b) Income from
property (c) Income from business {including Speculation
business} (d) Capital gains and (e) income from other
sources.
Since it is a very important classification and would
be applicable to all class of persons, it is necessary
to refer briefly to sub-section 2, 3, 4, 5 & 6 of
Section 11 accordingly.
Subsection (2) stipulates that subject to the provisions
of the Ordinance, the income of a person under a head
of income for a tax year shall be the total of the amounts
derived by the person in that year that are chargeable
to tax under the head as reduced by the total deductions,
if any, allowed under this Ordinance to the person for
the year under that head.
Subsection (3) stipulates that the amount subject to
the Ordinance, if under a head of income, total deductions
allowed under the Ordinance to a person in a tax year,
the person shall be treated as having sustained loss for
that head for the year.
Subsection (4) stipulates that a loss in a head of income
for a tax year shall be governed according to the provisions
of Part-VIII of Chapter-III.
Subsection (5). It has been stipulated that income of
a resident person shall be computed by taking into account
of Pakistani and foreign source income.
Subsection (6) stipulates that income of a non-resident
person under the head of a income shall be computed by
taking into account only amounts that are Pakistani source
of income.
RESIDENTIAL STATUS
Before we proceed further, it would be appropriate to
discuss and take note of Residential Status of an Association
of Persons. Section 81 to 84 describes the residential
status to various units of Assessments. Under Section
81 read-with Section 84 , it will be observed that any
Association of Persons shall be a resident Association
of Person for a tax year if the control and management
of affairs of the association is situated wholly or partly
in Pakistan at any time for the year.
RETURN OF INCOME / STATEMENT
Since the entire process of assessment under the new dispensation
start with the filing of return, an Association of Persons
has to file its return of income under Section 114 on
the basis that ;
a) The taxable income exceeds the maximum amount that
of not chargeable to tax under the Ordinance for the year.
b) Has been charged to tax in respect of any of the four
preceding tax years.
c) Claims of loss carried forward under the Ordinance
for a tax year
d) Owns immovable property with land area of 250 Sq. yards
or more located in areas following in the limits of a
metropolitan / municipal corporation, Cantonment board
or the Islamabad capital territory. Owns any flat.
e) Owns the motor vehicle other than motor cycle in Pakistan.
f) Subscriber of telephone including a mobile phone in
Pakistan.
In addition to the above an Association of Persons is
required to file statement under Section 115 (4) if any
income falls under the presumptive or final discharge
of tax liability.
It may be stated that in case of discontinued business,
a notice has to be sent to the Commissioner within 15
days of the discontinuance under Section 117 and a return
has to be filed for the period commencing on the first
day of the Tax year in which the discontinuance occurred
and ending on the date of discontinuance and the said
period shall be treated as separate Tax year for the purposes
of Ordinance.
The assessment as envisaged under Section 120, 121 and
122 shall be made accordingly.
HEAD OF INCOMES
Now, we come to the different heads of income. Since the
head of income 'Salary' is not relevant for the entities
which come within the definition of an Association of
Persons. We will skip said head of income and will discuss
the income from property, the subsequent head of income
under section 11.
INCOME FROM PROPERTY
If, an Association of Person receives the rent or such
rent is receivable for a tax year other than any rent
which is exempt under the Ordinance, same shall be chargeable
to tax under the head of income from property.
Under subsection (2)
of section 15, the rent has been defined which means any
amount received or receivable by the owner of the land
or a building as consideration for the use or occupation
of, or right to use or occupy the land or a building and
which also includes forfeited deposit paid under a contract
for the sale of land or a building. Here, I wish to highlight
one important aspect that unlike definition of rent of
the repealed Ordinance in which the chargeability of income
from house property was governed under the philosophy
of annual value of the property which was restricted to
rent only. However, in the Income Tax Ordinance, 2001,
the lawmakers have included the concept of Lease and License
within the definition of rent . Although, we are aware
of the definition and distinction between the two expressions
i.e. "Lease" and "License", but for
the convenience, I will refer to the case (V) PLD 1964
SC 106 in which distinction between the said two terms
have been given. An additional source of income has been
included within the definition of rent, which is forfeited
deposit paid under the contract for the sale of land or
a building.
Subsection (3)
stipulates that the provisions of section 15 will not
apply to a person who receives the rent in respect of
lease of a building together with plant and machinery
which is chargeable under the different head of income
from other source. Similarly, any amount received or receivable
to any person for the provisions of amenities, utilities
or any service charges that the renting of the building
would also be chargeable to tax under the head of income
from other sources.
Under sub-section (4),
concept of Fair Market Rent has been introduced. It has
been stipulated that where the rent received or receivable
by a person is less than the Fair Market Rent for the
property, the person shall be treated as having derived
the Fair Market Rent for the period, the property is let
on rent in the tax year. Here, I wish to point out that
Fair Market Value has been defined under section 68, which
includes the rent. The Commissioner has been conferred
powers, in case the said fair market rent is not ordinarily
ascertainable, such rent may be determined by the Commissioner.
Absolute discretion without any guidance and guidelines
have been given to the Commissioner, which in my humble
opinion is against the cannons of law.
Section 16
stipulates the addition of such amount of income under
the head of income from the property, which are not adjustable
against the rent payable for the tenant and 1/10th of
the amount would be included in the income of a person.
Subsection (2)
of section 16 stipulates that if such amount is refunded
by the owner to the tenant on the termination of the tenancy
before the expiry of a tax year, no portion of amount
shall be allocated to the tax year in which it is refunded
to any subsequent tax year.
Section 17
provides deductions in respect of income chargeable under
the head of income from the property. Subsection (2) of
section 17 provides that where unpaid rent allowed as
deduction is wholly or partly recovered, the amount recovered
shall be chargeable to tax in the tax year in which it
is recovered. Subsection (3) of section 17 provides that
if a person has been allowed the deduction of any expenditure
incurred in deriving rent chargeable to tax and the said
person had not paid the liability or part of the liability
to which the deduction relates within the three years
of the end of the tax year in which the deduction was
allowed, the unpaid liability shall be chargeable to tax
under the head income from the property in the first tax
year following the end of three years. It may be noted
that this is an identical to the provisions of section
25© of the repealed ordinance. Subsection (4) of
section 17 is also materially same to section 25©
and it has been provided that if said unpaid liability
added in the income is subsequently paid, the same shall
be allowed as the deduction for the year in which it is
paid.
After covering the heads of income as submitted above,
I would like to refer to the provisions of section 66
which deal with the income of joint owners. Section 66
provides that other than income chargeable under the head
of income from business, where any property is owned by
two or more persons, their respective shares are definite
and ascertainable then the person shall not be assessed
as an Association of Persons in respect of property and
that share of each person in the income from the property
for a tax year shall be taken into account in the computation
of person's taxable income for that year. If we compare
the present provisions with the provisions of section
21 of the repealed Ordinance, it will be observed that
application of section 21 was restricted to the provisions
of section 19, which was the income from house property,
whereas, under the new law, only income from business
has been excluded. What is connotation of definite and
ascertainable share, guidelines can be taken from the
judgment of the Hon'ble High Court of Sindh in the case
of Qasim Ali Vs The Commissioner of Income Tax (W) (2000
PTD 1288).
INCOME FROM BUSINESS
Section 18
deals with the income from business and it stipulate that
the following income other than exempt under the ordinance
shall be charge to tax under the head of income from the
business;
a) Profit and gains of any business carried on by a person
at any time for the year,
b) Any income derived from any trade, profession or similar
association from the sale of goods or provision of services
to its members.
c) Any income from hire or lease of tangible movable
property.
d) The Fair Market Value of any benefit or perquisite
whether convertible into money or not derived by a person
in the course of or development of past, present or prospective
business relationship.
e) Any management fee derived by a management company
including Modaraba Management Company.
Subsection (2)
of section 18 provides that where a person is deriving
income from profit on debt and it is the person's business
is to drive the same shall be charged to tax under the
head of income from business and not under the head of
income from other sources.
Subsection (3)
of section 18 provides that where a scheduled bank, investment
bank, development finance institution, modaraba or leasing
company, is as a lessor has leased out any asset where
such asset is owned by them or not, to another person
any amount paid or payable by the said person in connection
of the lease of said asset, shall be treated as income
of the said lessor and shall be chargeable under the head
income from business.
Sub-Section (4)
provides that any amount representing distribution by
a mutual fund out of its income from profit on debts received
by a banking company or non-banking finance company shall
be charged to tax under the head of income from business
and not under the income from other sources.
It is humbly submitted that in natural consequence,
the provisions of Section 20 (Deductions in computing
income chargeable under the head "income from business"),
Section 21 (Deductions not allowed), Section 22 (Depreciation)
Section 23 (Initial Allowance), 24 (Intangibles), Section
25 (Pre-Commencement Expenditure), 26 (Scientific Research
Expenditure), Section 27 (Employee Training and Facilities
) Section 28 (Profit on Debt, Financial costs and Lease
payments) Section 29 (Bad Debts) will be applicable for
determining the income from business.
It may be further stated that Profit and gains arising
from Speculative business shall be included in person's
income chargeable to tax under the head income from business,
off course said Speculative business shall be treated
as distinct and separate from any other business. If any
Association of Person is engaged in Speculative business,
provisions of Section 19 will squarely apply.
CAPITAL GAINS
Similarly, the provisions of Section 37 and 38 will apply
if any gain arises to an Association of Person on the
disposal of Capital asset. The term "Capital Asset"
has been defined under Sub-Section (5) of Section 37 which
reads as under:
(5) In this section, "capital asset" means
property of any kind held by a person, whether or not
connected with a business, but does not include -
(a) any stock-in-trade (not being stocks and shares),
consumable stores or raw materials held for the purpose
of business;
(b) any property with respect to which the person is
entitled to a depreciation deduction under section 22
or amortisation deduction under section 24;
(c) any immovable property; or
(d) any movable property excluding capital assets specified
in sub-section (5) of section 38 held for personal use
by the person or any member of the person's family dependent
on the person.
INCOME FROM OTHER SOURCES.
The provisions of Section 39 and 40 shall squarely apply
to the extent same are applicable to an Association of
Person. Under Section 39 it has been stipulated that Income
of every kind (other than to any income received by a
person in a tax year that is chargeable to tax under any
other head of income or subject to tax under section 5,
6 or 7) received by a person in a tax year, other than
income exempt from tax under this Ordinance, shall be
chargeable to tax in that year under the head "Income
from Other Sources", includes namely:-
(i) Dividends; (ii) royalties;
(iii) Profit on debt; (Subject to conditions laid down
therein) (iv) ground rent;
(v) rent from the sub-lease of land or a building;
(vi) Income from the lease of any building together with
plant or machinery;
(vii) Any annuity or pension;
(viii) Any prize bond, or winnings from a raffle, lottery
or cross-word puzzle;
(ix) Any other amount received as consideration for the
provision, use or exploitation of property, including
from the grant of a right to explore for, or exploit,
natural resources;
(x) The fair market value of any benefit, whether convertible
to money or not, received in connection with the provision,
use or exploitation of property;
(xi) any amount received by a person as consideration
for vacating the possession of a building or part thereof,
reduced by any amount paid by the person to acquire possession
of such building or part thereof. The said be chargeable
to tax under the head "Income from Other Sources"
in the tax year in which it was received and the following
nine tax years in equal proportion.
(xii) any amount received as a loan, advance (other
than advance for payment for sale of goods or supply of
services), deposit or gift by a person in an income year
from another person (not being a banking company or financial
institution) oherwise than by a crossed cheque drawn on
a bank or through a banking channel from a person holding
a National Tax Number Card.
Under Sub Section (6) it has been provided that Expenditure
is of a capital nature if it has a normal useful life
of more than one year. In my humble opinion, the said
Sub-Section is misplaced in Section 39.
At this stage it will be convenient, if I may list out
various kinds of income which are Final Tax Liability.
FINAL TAX LIABILITY
Section 5 Dividend Income
Section 6
Pakistan Source Royalty or Fee For Technical Services
of a non Resident Person (if such non resident is a foreign
association whether incorporated or not which has not
been declared by general or special order as a company
by CBR.)
Section 7
Shipping and Air Transport income of Non Resident Person
(if such non resident is a foreign association whether
incorporated or not which has not been declared by general
or special order as a company by CBR.)
Section 113A
Fixed tax on Retailer being an AOP - Turn over up to 5
Million (Optional)
Section 148
Imports in the case of Resident AOP
Section 153
In the case of Resident AOP - Sale of goods execution
of a contract (other than a contract for sale of goods
or the rendering of services.
In case of Non-Resident AOP
(if such non resident is a foreign association whether
incorporated or not which has not been declared by general
or special order as a company by CBR.)
(a) Turkey contract
(b) A contract or sub contract for the design, construction
or supply of plant and equipment under Power project.
(c) A contract or sub-contract under a construction, assembly
or installation projection in Pakistan including a contract
for the sale of Supervisory activities in relation to
such project.
(d) Any other contract or services rendered other than
a contract to which section 152 apply.
(e) Contract for advertisement services rendered by T.V.
Satellite Channel.
Section 154 Export of goods by an exporter
Export of goods under an inland back to back letter of
credit or other arrangement as prescribed by CBR.
Export made from area located in Export Processing Zone
Authority established Under Export Processing Zone Authority
Ordinance 1980.
Direct Exporter and Export House registered under the
Duty and Tax Remission for Export Rules 2001 read with
Sub-Chapter 7 of Chapter XII of the Customs Rules 2001.
Section 156 Prizes and winnings
Section 156A. Petroleum Products.
Section 233 Brokerage and Commission.
Section 234 Owner of Goods transport vehicle which is
plied or hired out.
PRINCIPLES OF TAXATION OF AN ASSOCIATION OF PERSONS.
Under this heading of law, the principles of taxation
of an Association of Persons, taxation and its members,
treatment of losses in the case of an Association of Persons
have been provided.
The principles of taxation of an Association of Persons
have been dealt with under section 92. Before dealing
with the precise points involved, it is stated that an
Association of Persons shall be liable to tax separately
from the members of the association and where an Association
of Persons had paid tax, the amount received by a member
of the association in the capacity as a member out of
the income of the Association of Persons shall be exempt
from tax. This provision is qualified with an exception
that such exemption shall not be applicable to an Association
of Persons that is a professional firm prohibited from
incorporating by any law or rules of the body regulating
the profession. The members of such professional firm
shall be taxed in accordance with the provisions of section
93 which stipulates that income of a member of an association
chargeable under the head of income from business for
a tax year shall include in the case of a resident member,
the members share in the total income of the association
and in the case of a non-resident member, the member's
share insomuch of the total income of the association
as is attributed to Pakistani source of income. Referring
back to the Association of Persons other than professional
firm, provisions of section 114 (return of income, 118
method of furnishing return and documents and section
119 extension of time for furnishing of return and other
documents will be applicable).
Section 88 of the Ordinance gives machinery of taxation
of an individual as member of an association. It stipulates
that for a tax year, if an individual has taxable income
and derives an amount or amounts exempt from tax under
section 92(1) (i.e. where an Association of Persons had
paid tax of the amount received by the member is exempt),
the amount of tax payable on the taxable income of the
individual shall be computed in accordance with the formula
given under section 88 i.e. (A/ B) x C where A is the
amount of tax that would be assessed to individual for
the year if the amount or amounts exempt from tax under
sub-section (1) of section 92 were chargeable to tax.
B is the taxable income of the individual for the year
if the amount or amounts exempt from tax under subsection
(1) of section 92 were chargeable to tax and C is the
individual's actual taxable income from the year.
ASSOCIATES
Under Section 85 , it has been stipulated that two persons
shall be associate where the relationship between two
is such that one may reasonably be expected to act in
accordance with the intention of the other, or both persons
may reasonably be expected to act in accordance with the
intention of a third person. Under Sub-Section (3) (b)
and (c) members of an association of Persons and a member
of Association and the association relationship has been
included within the meaning of the term " Associate",
which is subject to condition that where the Commissioner
is satisfied that neither person may reasonably be expected
to act in accordance with the intention of the other.
In my humble view this provision has to be read with Section
108, which confers power to the Commissioner to make adjustment,
distribute, apportion or allocate transaction between
persons who are associates in respect of income, deduction
or tax credits on the basis of arm's length transactions.
I may also submit that powers conferred through Section
85 and 108 are without any guidelines or parameters which
is not legally sustainable in law as no check and balances
have been provided neither in the provision of Ordinance
nor in the Rules framed there under.
LOSSES
While discussing about the concept and treatment of "Loss"
suffered by a Tax payer with reference to a Association
of Persons, it is necessary to keep in mind the basic
definition of "Income" as defined under Clause
29 of Section 2, which includes a loss. Sub-section 3
of Section 11 stipulates that loss in a tax year is the
excess of total deduction under a head of income over
the amount chargeable to tax under that head. It is to
be noted that as provided under Section 56, loss in a
Tax year under any head of income can be set off against
income chargeable to tax under any other head of income
in that tax year except Capital Loss or Speculative business
loss. The business loss shall be set off last. It is to
also to be noted that Capital loss and Speculative business
loss can only be set off against Capital gain and Speculative
gains respectively.
Before we dilate upon the concept of carry forward of
loss, it has to be kept in mind that claim of Carry Forward
of loss can only be claimed if a return of Income is filed
(Under Section 114(1)(b)(ii) in which such a Carry Forward
of loss is claimed. If no Carry forward is claimed in
the return, same cannot in law be carry forwarded.
Following losses can only be carry forwarded.
a) Business losses b) Speculative losses and
c) Capital Losses.
So far as Carry Forward of loss under the head "Income
from Business" is concern (Section 57), if loss cannot
be wholly set off in the same tax year, the portion of
loss which has not been set off shall be carried forwarded
to the following tax year but no loss can be carried forwarded
to more than six year immediately succeeding the tax year
for which the loss was first computed. It is further submitted
that the loss of the earliest tax year shall be set off
first.
In this connection let us now discuss the set off of
certain deductions. It has been provided under sub-section
4 and 5 of Section 57 that where the loss under the head
income from business includes deductions allowed under
Section 22 ( Depreciation), Section 23 (Initial allowance
of Depreciation) and Section 24 (Intangibles) that have
not been set off against income, the amount not set off
shall be added to the deduction allowed under those sections
in the following tax year and so on until completely set
off. It thus means that there is no limitation for set
off. It is further provided that such deductions allowed
under Section 22, 23 and 24 shall be taken into account
last.
Section 58
deals with Carry forward of losses from Speculative business,
limitation of which is six years for set off and earliest
loss will be set off first.
Section 59
deals with the Carry forward of Capital loss, , limitation
of which is six years for set off and earliest loss will
be set off first.
Now we come to the relevant provision of Section 59A
(which was inserted by Finance, Act, 2003) which deals
with the person namely an " Association of Persons".
I would humbly submit that to under stand the mechanism
provided under Section 59A, the provisions of Section
92 and 93 have to be kept in mind.
In this connection, I would humbly submit that for better
understanding the concept of loss incurred by an ASSOCIATION
OF PERSONS from the provisions of sections 59A, 92 and
93, firstly we have to discuss the loss incurred/suffered
by a professional firm and than it will be convenient
to discuss the provisions in respect general ASSOCIATION
OF PERSONS. Under the provisions of section 93 in case
of professional ASSOCIATION OF PERSONS, if loss which
is sustained by such ASSOCIATION OF PERSONS, cannot be
set off against any other income of the association as
provided under sections 56, the amount of loss shall be
apportioned among the members of the association according
to their interest in the association and the members shall
be entitle to their share of the loss set off and carried
forward for set off under sections 56, 57 and 59A in computing
the taxable income under this ordinance. This is because
of two important provision of law. Under Sub-Section (1)
of Section 59A it has been provided that in the case of
a professional Association of Persons any loss which cannot
be set off against any other income of the Association
of Person in accordance with Section 56, same shall be
dealt with under Sub-Section (2) of Section 93. Similarly
the provisions contained in sub-section (2) of Section
59A bars carry forward and set off of a loss by a professional
Association of Person under Section 57, 58 and 59. The
share of loss referred above, if is of a non-resident
member shall be limited to the extent that the loss relates
to the derivation of Pakistani source of income. Under
sub-section (4), it has been provided that total income
of an ASSOCIATION OF PERSONS of a professional firm for
the purposes of sub-sections (1) and (2) shall be computed
as if the association were of resident person. It, therefore,
means that for the purposes of calculating the loss as
envisaged under section 93, the status of the member (non-resident,
if any) shall be ignored.
Sub-section (5)
further stipulates that the income, expenditure and loss
of a professional ASSOCIATION OF PERSONS shall retain
their character as to geographic source and type of income
expenditure and loss in the hands of the member of the
association shall be treated as having passed through
the association on prorata basis unless the Commissioner
permits or otherwise by order in writing to the association.
Sub-section (6)
provides that share of a member shall be determined according
to the member's interest in the association and shall
include any profit on debt, brokerage, commission, salary
or other remuneration received or due from the association.
Coming back to the section 59A and the provisions contained
for a association other than the professional firms, it
has been provided under sub-section (3) of Section 59A
that any loss of such association shall be set off or
carried forward and set off only against the income of
the association.
Under Sub- section 4 of Section 59A, certain entitlements
contained in sections 56, 57, 58 or 59 have been barred
i.e.
a) a member of non professional Association of Person
is not entitled to set off or carry forward any loss sustained
by such Associations.
b) in the case of succession other than inheritance,
carried forward and set off loss of the predecessor shall
not be allowed against the income of the successor.
Sub-Section (5)
provides that where in computing the taxable income for
any tax year, full effect cannot be given to a deduction
mentioned in sections 22 (Depreciation) , 23( Initial
Allowance), 24 (Intangibles ) or 25 (Pre Commencement
Expenditure) owing to there being no profits or gains
chargeable for that year or such profits or gains being
less than the deduction, then, subject to sub-section
(12) of section 22, and sub-section (6), the deduction
or part of the deduction to which effect has not been
given, as the case may be, shall be added to the amount
of such deduction for the following year and be treated
to be part of that deduction, or if there is no such deduction
for that year, be treated to be the deduction for that
year and so on for succeeding years.
Sub-Section (6)
stipulates that where, under sub-section (5), deduction
is also to be carried forward, effect shall first be given
to the provisions of section 56 (Set off of Losses) and
sub-section (2) of section 58 (Carry forward of Speculation
business losses).
Sub-Section 7
makes mandatory statement that notwithstanding anything
contained in this Ordinance, no loss which has not been
assessed or determined in pursuance of an order made under
sections 59, 59A, 62, 63 or 65 of the repealed Ordinance
or an order made or treated as made under section 120,
121 or 122 shall be carried forward and set off under
section 57, sub-section (2) of section 58 or section 59.
ADVANCE TAX .
As indicated in the preceding paragraphs while examining
the provisions of the Ordinance, we have to be mindful
of the language used for the purpose of statutory provisions.
Keeping in mind the aforesaid principle, let us examine
the provisions of Advance Tax and deduction of tax at
source and responsibility of an Association of Person.
We are well aware with the provisions of section 147
relate to advance tax payment. Under the said section,
advance tax shall be liable to be paid by every tax payer
including an Association of Person in respect of following
period and dates, namely;
(a) in respect of the September quarter, on or by 15h
day of September;
(b) in respect of the December quarter, on or before 15th
day of December;
(c) in respect of the March quarter, on or before 15th
day of March; and
(d) in respect of the June quarter, on or before 15th
day of June.
However, in the case of an individual and Association
of Persons, the said responsibility will be attracted
if the persons latest assessed taxable income excluding
income referred to in clauses (a) (Capital Gains) , (b)
(Income chargeable on Dividend, Royalty and Fee for Technical
Services , (ba) (Income from Property), (c) (Income from
Salary) and (d) (Certain final tax liabilities) of sub-section
(1) exceeds Rupees Two hundred thousand rupees.
It may further be stated that facility of filing estimate
has been provided which may be filed before the concerned
Commissioner at any time before the last installment is
due, that the tax payable by Tax Payer for the relevant
tax year is likely to be less than the amount Tax Payer
is required to be paid.
It may be humbly submitted that interestingly, the legislature
has provided the method of calculating each installment
under Sub - Sections (4) and (4A) for Companies and Individuals
rfespectively, however, there is no method prescribed
for an Association of Persons. I may submit that although,
the provision of Sub-Section (1) confers responsibility
in law to pay Advance Tax for an Association of Person,
the failure to provide method for calculating Advance
Tax for an Association of Person, said unit of Assessment
i.e. may argue that provisions are not applicable to them.
It may be humbly submitted that there is deficiency and
ambiguity in the language of law.
The above reasoning of mine is based on well settled principles
of law that (a) Tax is to be levied by a clear and unambiguous
legislation and any doubt or ambiguity is to be resolved
in favour of tax payer. (b) The law has to be interpreted
as it stands and nothing can be added or deleted in the
statue. (c) While interpreting a fiscal statute only the
letter of the law must be looked into and there is no
room for any intendment. The taxing statute must be interpreted
in the light of what is clearly expressed. A Court cannot
imply anything which is not expressed. It cannot import
provisions in the statute, so as to support assumed deficiency.(d)
If the words of statute fails, then so must tax (e) If
the person sought to be taxed comes within the letter
of the law he must be taxed, however great hardship may
appear to the judicial mind to be. On the other hand,
if the state, seeking to recover the tax, cannot bring
the subject within the letter of law, the subject is free,
however, apparently within the sprit of the law the case
might appear to be. It is adherence to the words alone.
(X)
Therefore, since there is no method of calculating the
Advance tax for each Quarter, an Association of Person
though liable to pay Advance tax, will be at liberty not
to pay such Advance tax.
DEDUCTION OF TAX AT SOURCE
Coming to the provisions of deduction of tax at source,
the responsibility, so far as of an Association of persons
is concerned, are as enumerated below:
Section 149 - Deduction of tax at source on salary, if
an Association of persons is an employer. Rate of Deduction
- Average tax on the estimated salary for the year
Section 151 - profit on debts, if an Association of persons
is a financial institution or financial society, which
pays a profit on the deposits or instruments mentioned
under section 151, the said association of persons is
responsible to deduct the tax at source. The Rate of Tax
is 10%.
Section 152 - if an Association of persons pays royalty
or fee for technical services to a non-resident, it shall
be responsible for deduction of tax at source at 15%.
On other payments tax to deducted at 30%.
Section 153 - Payment of goods and services. Under this
provision of law, the responsibility has been conferred
upon prescribed persons, which have been defined under
sub-section (9) of section 153. Clause ( c ) of sub-section
(9) prescribes the persons as association of persons constituted
by or under law. We have already discussed the legal implication
of the term "constituted by or under law" in
preceding paragraphs, which in may humble opinion, it
will be applied mutatis mutandis. Thus, only such Association
of persons are responsible which are constituted by or
under law. Coming to clause (d) and (e) of sub-section
(9) of section 153, if the foreign contractor or consultant
or consortium or joint venture is an association of persons,
then the responsibility of tax deduction is applicable
without any qualification, whatsoever.
Section 154 - If the association of persons is dealer
in foreign exchange, it will be responsible to deduct
the tax at the time of realization of foreign exchange
proceeds. Similarly, under sub-section (3b) of section
154, if association of persons is a direct exporter and
an export house registered under the Duty and Tax Remission
for Export Rules 2001 read with sub-chapter 7) of chapter
XII of the Customs rules, 2001 shall be responsible to
deduct the tax as specified under sub-section (3b) of
section 154.
Section 155 - Under this section, the responsibility has
been cast on prescribed persons, which include a non-profit
organization, as such, if an association of persons is
a non-profit organization within the meaning of clause
36 of section 2 of the income ordinance, 2001, the said
Association of Persons shall be responsible to deduct
the tax under section 155 while making the payment in
full or in part including advance to any person on account
of rent of immovable property including rent on furniture
and fixture and amount of services relevant to such property.
Rate of Deduction is at 5% of the gross rent where annual
rent exceeds Rs.300,000
Section 156 - Under this section, if an association of
person is paying for, any winning a raffle, lottery, price
of winning a quiz or cross word puzzle, shall deduct the
tax according. Rate of tax to be deducted is 10%.
Section 156A- If an Association of Person, is selling
Petroleum products to a petrol pump operator, shall be
responsible to deduct tax at 10%.
Section 158 to 160 shall also be applicable while considering
the responsibility of taxed deducted at source simultaneously
the penal and recovery provisions contained section 161
shall accordingly apply.
Section 233. Under this section only such Association
of persons which are
constituted by or under any law shall be responsible to
deduct tax on payments made by them on account of Brokerage
and Commission.. We have already discussed the legal implication
of the term "constituted by or under law" in
preceding paragraphs, which in my humble opinion, will
be applied mutatis mutandis . As such, only such association
of persons is responsible which are constituted by or
under law.
Section 236. Under Sub -Section (1) (b) and Sub Section
(3) responsibility to collect Advance tax has been provided
on a person issuing or selling prepaid Telephone cards
at the time of issuance or sale of cards. If an Association
of Persons is engaged in such business activity, it will
be responsible to collect advance tax at the time of issuance
or sale of prepaid Telephone cards.
CERTIFICATE AND STATEMENT
It may be submitted that An Association of Person shall
be legally responsible to issue a Certificate of Collection
/ deduction of tax under Section 163 and simultaneously
will be responsible to file Statements under Section 165
on prescribed form, manner and time, if it has with held/
deducted or collected .
TAX ACCOUNTING.
Unlike the provisions of the repealed Ordinance, the new
Ordinance gives option to the taxpayer to adopt any method
of accounting either on accrual basis or on cash basis.
However, it is mandatory that income chargeable to tax
shall be computed in accordance with the method of accounting
regularly applied by such persons. So far as the accrual
basis accounting is concerned, it has been provided that
a company shall account for income from the business on
accrual basis while other persons may account for such
income on cash or accrual basis. It, therefore, means
that an AOP can apply method of accounting on cash basis
or accrual basis. However, the machinery has been provided
for change in the method of account under subsection (4)
and (5) of section 32. The law has further elaborated
the cash basis and accrual basis accounting under section
33 and 34 respectively. Similarly, for determination of
cost of stock in trade, separate section has been given
under section 35 which is of prime importance.
The provisions of Rules 28 to 33 of Chapter VII of the
Income Tax Rules, 2002 (as amended from time to time)
framed under Section 237 of the Income Tax Ordinance,
2001 have to be kept in mind, more particularly for the
reason that concept of No books of accounts has been given
away for making the economy documented.
I may also invite attention to the provisions of Sub-Section
(5) , (5A) and 6 of Section 34 which are analogous to
the provisions of Section 25 (a) and Section 25 (c) of
the Repealed Ordinance, 1979. The Section 70 in this regard
is also an important provision of law.
OTHER IMPORTANT AND RELEVENT PROVISIONS.
TAX CREDITS, DEDUCTIBLE ALLOWANCES AND EXEMPTIONS.
TAX CREDITS
Tax Credits under Sections 61 (Charitable Donations|),
62 (Investment in Shares) and 63 (Profit on Debt) are
entitlements which are available to an Association of
Persons. Reference may also be made to Section 63 (Retirement
Annuity Scheme) which would be applicable to a member
of an Association of Persons in his individual capacity.
I may, emphasis that while working out the entitlements
/ quantum of Tax Credits under provisions referred supra,
Section 65 is an important provision, which has to be
always kept in mind which requires to consider the "
Amount of Tax" and " Amount of Taxable Income"
in the formulas contained in Sections 61, 62,63 and 64
respectively.
DEDUCTIBLE ALLOWANCES.
An Association of Persons shall be entitled to deductible
allowances such as Zakat paid under the Zakat and Usher
Ordinance, 1980, Workers Welfare Fund paid under Workers
Welfare Fund Ordinance, 1971.
EXEMPTIONS
An Association of Persons shall be entitled to an exemption
subject to the conditions laid down by the legislature
in the relevant provision of law. I have separately dealt
with the exemption of Non Profit Organizations at appropriate
place.
INTERNATIONAL TAXATION AND AVOIDANCE OF DOUBLE TAXATION.
It is stated that under Section 101 the legislature has
defines the scope of Geographic Source of Income which
for today's discussion purposes is relevant. Since scope
of discussion of International taxation is much wide,
for brevity, I would only submit that provisions of Section
101, 103, 104, 105 and 107 have to be kept in mind while
examining the scope international transaction in respect
of an Association of persons.
NO GAIN OR LOSS TO BE TAKEN TO ARISE
Under the new ordinance, section 79 provides non-recognition
of rules, which provide that for the purpose of this ordinance,
no gain or loss shall be taken to arise in the case of
a resident person on the disposal of an asset;
a) between spouses under an agreement to leave apart,
b) by reason of transmission of the asset to an executor
or beneficiary on the death of a person.
c) by reason of gift of the asset.
d) by reason of the compulsory acquisition of the asset
under any law whether the consideration received for the
disposal is reinvested by the resident in an asset of
a like kind within the one year of the disposal.
e) By a company to its share holders on liquidation of
the company or
f) By an AOP to its members on dissolution of the association
where the assets are distributed to members in accordance
with their interest in the capital of the association.
It has been further provided under subsection (3) that
a person acquiring an asset shall be treated as acquiring
an asset of the same character as the person disposing
the asset and acquiring the asset for cost the cost equal
to the asset by the person disposing of the asset at the
time of disposal.
It may be further stated that to encourage corporatization,
a specific procedure of its tax treatment under the Ordinance
has been incorporated through Section 96. Its operation
is confined to disposal of all the assets of the business
by a resident Association of Persons to a resident company.
It has been provided that in such disposal, no gain or
loss shall be taken to arise if certain conditions are
satisfied.
(i) The consideration received by the association for
the disposal is a share or shares in the company (other
than redeemable shares);
(ii) the association must own all the issued shares in
the company immediately after the disposal;
(iii) each member of the association must have an interest
in the shares in the same proportion to the member's interest
in the business assets immediately before the disposal;
(iv) the company must undertake to discharge any liability
in respect of the assets disposed of to the company;
(v) any liability in respect of the assets disposed of
to the company must not exceed the association's cost
of / the asset at the time of the disposal;
(vi) the fair market value of the share or shares received
by the association for the disposal must be substantially
the same as the fair market value of the assets disposed
of to the company, as reduced by any liability that the
company has undertaken to discharge in respect of the
assets; and
(vii) the company must not be exempt from tax for the
tax year in which the disposal takes place.
It has been further stipulated Under Sub-Section (2)
that where sub-section (1) applies-
(a) each of the assets acquired by the company shall
be treated as having the same character as it had in the
hands of the association;
(b) the company's cost in respect of the acquisition
of the assets shall be -
(i) in the case of a depreciable asset or amortised
intangible, the written down value of the asset or intangible
immediately before the disposal;
(ii) in the case of stock-in-trade valued for tax purposes
under sub-section (4) of section 35 at fair market value,
that value; or
(iii) in any other case, the association's cost at the
time of the disposal;
(c) if, immediately before the disposal, the association
is subject to tax in accordance with sub-section (1) of
section 92 and the association has deductions allowed
under sections 22, 23 and 24 in respect of the assets
transferred which have not been set off against the association's
income, the amount not set off shall be added to the deductions
allowed under those sections to the company in the tax
year in which the transfer is made; and
(d) the association's cost in respect of the share or
shares received as consideration for the disposal shall
be -
(i) in the case of a consideration of one share, the
association's cost of the assets transferred as determined
under clause (b), as reduced by the amount of any liability
that the company has undertaken to discharge in respect
of the assets; or
(ii) in the case of a consideration of more than one
share, the amount determined under sub-clause (i) divided
by the number of shares received.
It has been provided under Sub-Section (3) that in determining
whether the association's deductions under Sections 22,
23 or 24 have been set off against income for the purposes
of clause (c) of sub-section (2), those deductions are
taken into account last.
PROVISIONS REGARDING ANY CHANGES
Section 98 provides that where there is a change of
fifty per cent or more in the underlying ownership of
an entity, any loss incurred for a tax year before the
change shall not be allowed as a deduction in a tax year
after the change, unless the entity (a) continues to conduct
the same business after the change as it conducted before
the change until the loss has been fully set off; and
(b) does not, until the loss has been fully set off, engage
in any new business or investment after the change where
the principal purpose of the entity or the beneficial
owners of the entity is to utilise the loss so as to reduce
the income tax payable on the income arising from the
new business or investment.
Under Sub-Section (2) the terms " entity" ,
"ownership interest'and " underlying ownership
has been defined, which terms read as under:
"entity" means a company or association of
persons to which sub-section (1) of section 92 applies;
"ownership interest" means a share in a company
or the interest of a member in an association of persons;
and
"underlying ownership" in relation to an entity,
means an ownership interest in the entity held, directly
or indirectly through an interposed entity or entities,
by an individual or by a person not ultimately owned by
individuals.
Similarly, Section 98A caters the situation when there
is change in the constitution of an Association of Persons.
It provides that where, during the course of a tax year,
a change occurs in the constitution of an association
of persons, liability of filing the return on behalf of
the association of persons for the tax year shall be on
the association of persons as constituted at the time
of filing such return but the income of the association
of persons shall be apportioned among the members who
were entitled to receive it and, where the tax assessed
on a member cannot be recovered from him it shall be recovered
from the association of persons as constituted at the
time of filing the return.
DISCONTINUANCE / DISSOLUTION
Section 98B stipulates that subject to the notice of
discontinuance furnished to the Commissioner under Section
117, where any business or profession carried on by an
association of persons has been discontinued, or where
an association of persons is dissolved, all the provisions
of this Ordinance, shall, so far as may be, apply as if
no such discontinuance or dissolution had taken place.
It further provides that every person, who was, at the
time of such discontinuance or dissolution, a member of
such association of persons and the legal representative
of any such person who is deceased, shall be jointly and
severally liable for the amount of tax payable by the
association of persons. It may at this juncture be pointed
out that term "liable" has been used which means
"responsible in law."
SUCCESSION OF BUSINESS
Section 98 C stipulates that where a person carrying on
any business or profession has been succeeded in any tax
year by any other person referred to as the "predecessor"
and "successor" respectively, otherwise than
on the death of the predecessor, and the successor continues
to carry on that business or profession., the predecessor
shall be liable to pay tax in respect of the income of
the tax year in which the succession took place up to
the date of succession and of the tax year or years preceding
that year; and the successor shall be liable to pay tax
in respect of the income of such tax year after the date
of succession.
It has been further stipulated that notwithstanding
anything contained in sub-section (1), where the predecessor
cannot be found, the tax liability in respect of the tax
year in which the succession took place up to the date
of succession and of the tax year or years preceding that
year shall be that of the successor in like manner and
to the same extent as it would have been that of the predecessor,
and all the provisions of this Ordinance shall, so far
as may be, apply accordingly. It is further provided that
where any tax payable under this section in respect of
such business or profession cannot be recovered from the
predecessor; it shall be recoverable from the successor,
who shall be entitled to recover it from the predecessor.
SERVICE OF NOTICE.
Service of any notice, order or requisition on any person
other than a resident individual subject to the Ordinance
shall be treated as properly served on the person if it
is personally served on the representative of the person.
The term "representative" has been defined under
Section 172 and its liabilities and obligations under
the Ordinance have been given under Section 173, which
has already been discussed in the preceding paragraphs.
It is stated that for the purposes of an Association of
Person Clause ( c ) and Clause ( e) of Section 172 are
relevant which are reproduced for convenience.
"(c) where the person is a trust declared by a duly
executed instrument in writing whether testamentary or
otherwise (including any Wakf deed which is valid under
the Mussalman Wakf Validation Act, 1913 (VI of 1913)),
any trustee of the trust;
(e) where the person is an association of persons, the
principal officer of the association or, in the case of
a firm, any partner in the firm;"
Again the term "Principal Officer as used in Clause
(c) and Clause (e) of Section 172 and any where else in
the Ordinance, has been defined under Clause (44A) of
Section 2 which reads as under:
(44A) "principal officer" used with reference
to a company or association of persons includes-
(a) a director, a manager, secretary, agent, accountant
or any similar officer; and
(b) any person connected with the management or administration
of the company or association of persons upon whom the
Commissioner has served a notice of treating him as the
principal officer thereof;
The other mode of service is to send notice, order or
requisition by registered post or courier service to the
person's registered office or address for service of notice
in Pakistan or where the person does not have such office
or addresses, the notice is sent by registered post to
any office or place of business in Pakistan or to be served
on the person in manner prescribed for service of summons
under the Code of Civil Procedure Code.
In case where an Association of Person is dissolved
such notice, order or requisition to be served on any
person who was the principal officer or a member of the
association immediately before such dissolution.
In case of discontinuance of business and where Section
117 (Notice to be given of discontinuance) applies, the
notice may be served on the person personally or on any
individual who was the person's representative at the
time of discontinuance.
Sub Section (5) of Section 218 provides that validity
of any notice or service of notice shall not be called
in question after the return has been filed in compliance
thereof or notice has been otherwise complied with. I
humbly submit that there is plethora of judgments wherein
it has been held that compliance will be vitiated if the
very notice is bad in law, illegal and without jurisdiction,
as consent does not confer jurisdiction. (Y)
COLLECTION AND RECOVERY OF TAXES
Section 137 , 138, 138A, 139 140 are provisions of law
under which the Commissioner can initiate collection and
Recovery proceedings. The detail functions have been provided
under the Income Tax Recovery Rules 122 to 210 contained
in the Income Tax Rules, 2002 of Income tax ordinance,
2001.
In my humble view special mention is necessary to Section
139 under where procedure has been given for recovery
of collection of tax in case of private companies and
an Association of Persons. Under Sub-Section (4), it has
been stipulated that notwithstanding any thing in law
where tax any payable by a member of an Association of
Persons in respect of the member's share of the income
of assessment in respect of any tax year cannot be recovered
from the member, the association shall be liable for the
tax due by the member. In this regard, I will like to
point out a very important aspect that under section 138,
the legislation has used words taxpayer. I would respectfully
emphasize on the said term, which in fact has been defined
under clause 66 of S 2 of the ordinance which means that
any person who derives an amount chargeable to tax under
the ordinance and includes; (a) any representative of
person who derives an amount chargeable to tax under the
ordinance, (b) any person who is required to deduct or
collect tax under Para-V of Chapter-X and Chapter-XII
or (c) any person required to furnish a return of income
or pay tax under the ordinance. As such, in my considered
and humble opinion, coercive measures like attachment
and sell of property including arrest of the representative
can be made by the Commissioner for the recovery of tax
due. We have already dealt with the definition of representative
in the preceding discussion and definition of term "
liable".
NON PROFIT ORGANISATION.
Although, scope of the topic of today's discussion is
very vast and wide and the areas which I have tried to
cover are most relevant to the entities falling within
the definition of Association of persons, however, looking
to the important of certain provisions, I feel that it
is my duty to point out one other very important provision,
which directly relate to the taxation of certain kinds
of an Association of Persons. As we are aware that Societies
and Trusts operate on non-profit basis for general benefit
and relief to the general public, for the promotion of
education for providing medical facilities and reliefs
including relief to the poor, therefore, mention of non-profit
organization is very necessary. Under the Income Tax Ordinance,
2001, a non-profit organization has been defined under
Clause 36 of S 2 which reads as under:
Section 2 Clause 36.
(36) "non-profit organization" means any person,
other than an individual, which is --
(a) established for religious, educational, charitable,
welfare or development purposes, or for the promotion
of an amateur sport;
(b) formed and registered under any law as a non-profit
organization;
(c) approved by the Commissioner for specified period,
on an application made by such person in the prescribed
form and manner, accompanied by the prescribed documents
and, on requisition, such other documents as may be required
by the Commissioner;
and none of the assets of such person confers, or may
confer, a private benefit to any other person;
It will be firstly seen that a non-profit organization
can bee established only by any person other than individual
and secondly for the purposes as elaborated in Clause
36. The legislation has defined the term " charitable
purpose " under Clause (11A) of S 2, which reads
as under:
"Charitable purpose includes relief of the poor,
education, medical relief and the advancement of any other
object of general public utility".
Under the provisions of S 53 and S 54 read with relevant
clauses of Second Schedule exempts the income of non-profit
organizations subject to the conditions contained therein
in each individual clause. Meanwhile, I may also referring
to Rules 212 to 220 which govern and regulate the procedure
of approval and allied matters relating to Non-profit
organizations.
In the last let me make a confession that without the
guidance of my father Mr. Sirajul Haque and my god father
Mr Rehan Hassan Naqvi, I would not have been able to prepare
such comprehensive paper. I am extremely grateful to the
them. I am also extremely grateful to the Executive Committee
and C.P.E Committee for directing me to prepare aforesaid
paper. I am also extremely grateful to this august gathering,
who listen the entire speech with patience and attention.
Thank You
Karachi dated 1.5.2005.
